How do solar rebates work?
There are a multitude of incentives available for home solar. This guide will help you make sense of them.
Although the technology of solar photovoltaics has been around for a long time, it’s only been fairly recently that we’ve seen their widespread adoption in the residential market. Governments at all levels, in the United States and around the world, have been using incentives as a way to kick-start the industry to help fuel job growth and meet their renewable energy targets.
This has been widely successful, helping to drive down the current price of solar to less than 1% of what it was in 1977. Swanson’s Law is the observation that the cost of solar drops by half every time the industry doubles its shipped volume. With the huge markets of China and India racing to install more renewable energy, we can expect this volume to continue to increase and prices to drop for the foreseeable future.
As the price comes down, governments and other entities are also starting to pull back on rebates. The most significant of these, the federal solar tax credit, will be reduced over the next few years. For the prospective solar homeowner today, it’s important to be aware of all the rebates available so that you can make a smart financial decision. This article summarizes all of these types of rebates, from federal to local.
Federal Solar Tax Credit
The most important incentive for the solar homeowner is the federal Residential Energy Efficient Property Credit, also known as the solar Investment Tax Credit for the business community. It gives you a deduction on your federal taxes for the installation of energy-related improvements to your home, including solar electric, solar hot water, small wind, and geothermal heat pumps.
The credit is currently calculated as 30% of your total system costs. It was recently extended by the Inflation Reduction Act, so it will be available until 2033 and then begin to phase out.
Because it’s so important, I wrote an article describing the solar investment tax credit in detail and how to apply for it .
Making sense of state and local rebates
After the federal tax credit, the other incentives available to the solar homeowner are at the state and local level. This is where it gets pretty complicated, because there are many different types of incentives that are implemented across the country, and they can come from state governments, local governments, individual utility companies, and non-governmental organizations.
Figuring out all of this on your own can be pretty tricky, so I’ve distilled the available rebates across the United States into the table below so that you can see at a quick glance whether you live in a state where you are likely to get a nice financial reward for going solar.
Due to the immense number of programs spread across all the states, municipalities, utility companies, and other governmental organizations, listing the actual programs in this article isn’t feasible.
Fortunately, all you need to do is use the solar pricing calculator to find out the details of the rebate programs in your area. It will take into account any of the incentives for your local area (except for property tax exemptions) and include them in the calculated price and payback period.
Before we review the table, here’s some definitions for each of the rebate categories:
Income tax rebate means that the state offers an income tax credit for solar photovolatics. A state tax credit works much like the federal credit, in that the deduction isn’t taken off the sticker price of your solar system, but instead is claimed when your yearly tax time rolls around. And much like the federal program, a state tax credit can only reduce your income tax bill to zero, and any unused credit is wasted - although some states do allow you to roll over any unused credits to following years.
Other state rebate refers to statewide rebates offered by an organization other than the state tax agency.
For example, the New York State Energy Research and Development Authority (NYSERDA) operates the NY-Sun program, which offers significant rebates to both homeowners and businesses going solar. NYSERDA is a public benefit corporation, and is separate from the NY Department of Taxation and Finance, which also offers a state tax rebate. (NY happens to be one of the best states for homeowners who want to go solar.)
Other states that also have non-tax agency rebates are Maryland (from the Maryland Energy Administration), New Hampshire (NH Public Utilities Commission), Rhode Island (RI Renewable Energy Fund), and Vermont (Vermont Public Utility Commission).
If the local rebates column indicates yes for your state, it means that some local governments or utility companies in that state are offering an incentive. This may or may not be where you happen live, so check with your local municipality and utility company to see what programs are available. Our calculator lists these rebates as well, but due to the very large number of towns and utility companies in the United States, this incentive category is difficult to keep up-to-date. If you find that we’re missing information on a solar rebate in your local area, please let us know.
Solar Renewable Energy Credits (SREC) are a market-based approach used by some states that have a target for renewable energy they want to meet, also known as a Renewable Portfolio Standard. A SREC is a credit representing the production of 1,000 kilowatt hours (1 megawatt hour) of renewable energy.
For example, if your solar home generates 5 megawatt hours of electricity in a year, you would receive 5 SRECs. You could then sell those credits on the open market to any entity that is trying to meet a renewable energy target. For example, a utility company with a preponderance of fossil fuel generation could purchase your SRECs to help meet their clean energy target. Because it’s an open market, the price of SRECs fluctations continuously, much like the stock market does.
We’ve only indicated yes in those states where the SREC market is viable enough for the credits to worthwhile to the solar homeowner. For example, in some states the SREC market is oversupplied, such as in North Carolina, which allows renewable energy producers from anywhere in the United States to register, making it virtually impossible for a North Carolinian solar homeowner to participate. In other cases, the market price for SRECs may be so low that it’s not really worth your time.
Renewable energy credits are definitely the most complicated way to implement a solar incentive, and prices for SRECs fluctate on a day-to-day basic, so I recommended visiting the SRECTrade website for up-to-date information.
If your state has a sales tax rebate, it means that solar is exempt from the state portion of your sales tax. Some muncipalities implement their own local sales tax, however, so even if your state offers tax relief, your town may not.
If a Property tax rebate mandate is indicated, it means that the state government has made solar photovoltaics exempt from increasing your property taxes. Suppose that you’ve added a $10,000 solar system to your house. This increases the value of your house, and at your next property tax assessment, your property tax would increase to reflect that added value unless your state or city offers an exemption for solar. This column only indicates where a state has mandated this rebate for all municipities. It’s always possible that your local town has independently created their own exemption. Check with your city tax office to find out.
Summary of solar rebates by state
This table is a summary of state and local rebates for solar photovoltaics. See the legend below for definitions.
- Income tax
- A state income tax rebate is available.
- Other state
- Indicates there is a non-income tax statewide rebate available.
- There may be local rebates available near you, either from your municipality or utility company.
- Solar Renewable Energy Credits are available in the state.
- Sales tax
- Indicates that there is a partial or complete state income tax rebate.
- Property tax mandate
- The state requires that local municipalities offer a property tax exemption for added value from solar panels.
|State||Income tax||Other state||Local||SREC||Sales tax||Property tax mandate|